The week begins with the Q1 current account

May 30, 2016

United States: Markets are closed Monday for Memorial Day.  Last Friday, Fed Chair Yellen confirmed what other policymakers have been saying, that a rate hike would be appropriate in “coming months” if data continued to improve. The employment report for May (Friday) will be most crucial piece of data heading into the June 14, 15 FOMC meeting. While the bar has been lowered in terms of the degree of strength necessary to allow the Fed to pull the trigger on June 15, an unambiguously soft report would likely delay a move. We’re forecasting a 190k increase in jobs, following the tepid 160k April gain. The unemployment rate is seen dipping back to 4.9% after inching up to 5.0%. Earnings are expected to rise 0.2%, while the workweek should dip to 34.4 from 34.5. The May ISM report (Wednesday) will be another key, along with the non manufacturing numbers. May income and consumption (Tuesday) will be monitored too as they are also key inputs in the Fed’s calculus. Income is expected to rise 0.4%.Consumption is expected to climb 0.6%, which would be the best since last May’s 0.9% print. Vehicle sales will be a key indicator too. Sales are seen 1.0% to a 17.5 mln pace, from 17.3 mln in April. The April trade numbers are a major component in the GDP outlook and the deficit is expected to widen slightly to -$40.9 bln from -$40.4 bln. Other data this week includes the ADP private payroll survey, the Chicago PMI, construction spending and factory orders.). The manufacturing sentiment index is estimated dipping to 50.5 after falling 1 point to 50.8 in April. Fedspeak will help the markets price in the likelihood of a June or July tightening after Yellen added to the drumbeat of a rate hike in coming months. Governor Powell (voter) and Kaplan are on tap (Thursday) with the former discussing regulation and the latter speaking on the economy. Brainard (voter) and Evans (Friday) will give their views on policy and the economy. And Mester (voter) speaks on macro stability (Saturday) at a Riksbank conference. Fedspeak will dry up next week heading into the blackout period ahead of the June 14, 15 FOMC meeting.

Canada:  The week begins with the Q1 current account (Monday) expected to reveal a widening to a -C$16.5 bln deficit from the -C$15.4 bln shortfall in Q4. The industrial product price index (Monday) is seen falling 0.3% (m/m, nsa) in April after the 0.6% drop in March. The real Q1 GDP report (Tuesday) should show a sharp acceleration to a 2.8% clip (q/q, saar) from the 0.8% pace in Q4. GDP for March, also due Tuesday, is seen dipping 0.1% (m/m, sa) after the identical sized drop in February. May industry level vehicle sales figures are expected on Wednesday. The RBC May manufacturing PMI is also due Wednesday. The week ends with the April trade report (Friday), where a substantial narrowing in the deficit to -C$2.5 is projected after the shortfall ballooned out to -C$3.4 bln in March from -C$2.5 bln in February. Exports are seen improving 3.3% m/m while imports gain 1.0% m/m. Productivity (Friday) rounds out the week, with a 0.3% gain (q/q, sa) anticipated for Q1 after the 0.1% rise in Q4. The Bank of Canada’s Deputy Governor Schembri presents (Thursday) and Governor Poloz speaks Saturdayto the Canadian Economists Association, with a press conference scheduled after this speech.

Europe: The ECB policy decision (Thursday) and preliminary May inflation data take centre stage this week. Eurozone officials have made it pretty clear that they are on hold at the moment and focused on implementing the measures already announced. Data calendar is full too and includes the first round of preliminary inflation data for May, as well as ESI economic confidence and German labour market data. We are looking for a rise in the German HICP rate (Monday) to -0.1% y/y from -0.3% y/y and see French and Italian readings lifting to 0.1% y/y and -0.2 %y/y respectively. French rate lifting to 0.1% y/y from -0.1% y/ y, which should bring the overall Eurozone CPI (Tuesday) to 0.0% y/y from -0.2% y/y in the previous month.  The May round of survey data completes with the final readings of manufacturing and services PMIs, which are expected to be confirmed at 51.5 and 53.1 respectively. The ESI Economic Confidence Indicator (Monday) meanwhile is seen rising to 104.4  from 103.9 in April. Germany remains one of the outperformers and with the output gap closing the labour market continues to look tight. We see the overall jobless number falling further in May by -5K,  which would leave the jobless rate at a very low 6.2%. The overall Eurozone rate for April meanwhile is seen steady at 10.2%. The very busy data calendar also has M3 money supply as well as Eurozone PPI and retail sales and French consumer spending.

UK: Sterling markets will be closed Monday for a UK public holiday. The composite PMI reading (Friday) is forecast rising to 52.3  from April’s cycle low of 51.9. Lending data from the BoE is also up (Wednesday), which we expect to reveal a drop in mortgage approvals in April to 68.9k  from 71.4k in March. Thursday marks the three weeks to go mark until EU-vote day, so Brexit polling will remain very much in focus. The G7 waded in on Friday with warnings of economic and political consequences if the UK left the EU, and markets will be looking to see if this helps maintain the recent run of polls pointing to a rise in support for “Remain.” Bookmaker Ladbrokes (since last Wednesday) has been giving 81% odds for the Brits to vote for remaining in the EU, which compares to 79% at the beginning of last week and 71% at the beginning of the week previous to that. Opinion polls suggest the vote will be much closer. The FT Brexit poll tracker on Friday was showing 46% support for Remain and 41% for Leave, unchanged from the previous day.

China: May PMI’s are awaited (Wednesday), where the official CFLP series is expected to slip to 49.9 from 50.1, and the Caixin/Market series at 49.0 from 49.4.

Japan: April unemployment (Tuesday) is seen steady at 3.2%. April personal income (Tuesday) is forecast to have inched up 0.1% y/y from the previous 0.3% gain, while PCE is expected to improve to a -1.5% y/y pace from -5.3% in March. April industrial production (Tuesday) is penciled in at -1.0% y/y from the sharp 3.8% gains in March. April housing starts (Tuesday) likely rose 3.0% y/y from the 8.4% clip previously. April construction orders are also dueTuesday. The Q1 MoF capex survey (Wednesday) is forecast posting a modest 1.0% y/y gain from the 8.5% pop seen in Q4. The May Markit/Nikkei PMI (Wednesday) likely slipped further into contractionary territory, expected at 47.5 from 48.2 in April, based on the drop in the flash reading to 47.6. April auto sales data are also due (Wednesday), while May consumer confidence (Thursday) is seen falling to 40.5 from 40.8. Just as important as the data could be comments from PM Abe. There’s been talk that he’ll announce a delay to the proposed 2017 VAT tax hike. An Abe aide reportedly indicated the PM told senior advisors of the LDP that the increase will be postponed until October 2019. Nikkei News also indicated he is planning up to $90.7 bln in fiscal stimulus.

Australia: Q1 GDP (Wednesday), expected to grow 0.7% in Q1 following the 0.6% gain in Q4 (q/q, sa). The Q1 current account balance (Tuesday) is seen at -A$19.0 bln from -A$21.1 bln in Q4. The trade balance (Thursday) is seen at -A$2.0 bln in April from -A$2.2 bln in March. Retail sales (Thursday) are expected to rise 0.2% m/m in April after the 0.4% gain in March. There is nothing from the usually vocal Reserve Bank of Australia this week.

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